XYZ.com is trying to become one of the first non-Chinese gTLD registries to be able to sell unhindered into the Chinese market, in the face of Draconian government regulations.

The company has filed a Registry Services Evaluation Process request with ICANN — the first of its kind — that would let it use a gateway service, based in China, to comply with strict local laws on registries, registrars and registrants.

The Ministry of Industry and Information Technology regulations have been in place for a decade, but it’s only in the last year or so, in light of the new gTLD program, that China has been strictly enforcing them.

Anyone in China can buy a domain, but you need a license if you want to put up a web site, according to Gavin Brown, CTO of .xyz back-end CentralNic. Registrants also need to have their Whois information verified and validated, he said.

The problem for Chinese residents today is if they buy a domain in a TLD that is not licensed by the government, they won’t be able to obtain a license to host a web site on that domain.

The .xyz gTLD is believed to have a few hundred thousand domains registered via Chinese registrars, a substantial portion of its total.

There’s a worry that China could demand the deletion of these names and others, as it has previously in .cn, if the proper licenses have not been obtained.

Naturally, the inability to use these domains has led to a lot of pissed-off registrants. XYZ says has been receiving complaints from its registrars in the country, which in turn have been receiving complaints from their customers.

XYZ proposes to fix the problem by using a gateway service provided by ZDNS, a DNS provider based in mainland China.

Registrars in the country would maintain a separate EPP connection to ZDNS, which would act as a proxy to CentralNic’s UK-based primary EPP system.

ZDNS, which is prominently promoting its gateway service on its web site, would handle the Whois verification and also proxy the .xyz Whois lookup service, but only as it pertains to Chinese registrants and queries originating in China.

Data on non-Chinese registrants would continue to be housed with CentralNic.

ZDNS would also prevent Chinese registrants registering domains containing strings that have been banned by the government.

XYZ’s RSEP request (pdf) is currently undergoing its technical/competition review with ICANN. Assuming it passes, it would be exposed to public comment before being approved.

The RSEP states: “we are confident that the entire Internet user base of China would endorse this service and that Chinese registrars would strongly endorse this service.”

It’s the first such request to ICANN, suggesting that an awful lot of gTLDs are still not compliant with the Chinese regulations.

As of April, only 14 TLDs — all managed by China-based companies — were licensed to operate in China.

So Negari has sold a product that does not work for hundreds of thousands of customers? Can you imagine the blow back if Apple sold a bunch of iPhones that didn’t work? Who do those customers turn to? ICANN compliance? Ombudsman? The Chinese government? And what are the odds of Chinese Government filing a comment opposing this request? 100%. And then what does ICANN do?